Month: April 2017

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For the last few quarters, I’ve posted returns by asset class (by representative ETF), as well as year-to-date, last twelve months, and last five years. While there is still no predictive power in this data, I updated those charts (minus the year-to-date since it is the same as the last quarter in this case) as of the end of Q1 2017 for those of you that are interested (see below).

· After lagging in Q4, emerging market stocks, foreign developed market stocks, and emerging market bonds led the way in Q1. These are also three of the asset classes that have under-performed for much of the last 5 years.

· The only losing asset class during Q1 was Commodities (energy, metals, agricultural products). This is somewhat surprising given that inflation has started to pick up a bit, but the impact of the global oil glut outweighed U.S. general reflation.

· Despite the Federal reserve hike in short-term rates in March, the second hike since December, aggregate bonds and short-term bonds had (slightly) positive returns over the last quarter and the last year. Higher rates generally mean lower prices for bonds, but this is offset somewhat by the interest (which increases with higher rates) that those bonds pay. As long as rates don’t spike quickly, and as long as we stay away from long-term bonds (we do), bonds will continue to do fine and will continue to add a cushion to overall portfolios.

· All major asset classes remain positive over the last 12 months.

· Repeating from last quarter… On the five-year chart, you can clearly see the marked underperformance of foreign stocks (developed and emerging markets), emerging market bonds, and most notably, commodities (everyone remembers the massive declines in energy prices back in 2015). While commodities have bounced back after bottoming in early 2016, they have a long way to go to regain their highs, and that is a very good thing for worldwide consumers (though not so good for oil-producing / oil-exporting countries). The underperformance of international markets can be viewed in one of three ways: 1) international stocks are now dirt cheap as compared to US stocks, OR 2) international economies are doing much more poorly than the US economy and therefore, due to limited future growth, their stock markets have fairly performed much more poorly than US stocks OR 3) some combination of the two. There is no way to know the answer, so we will remain diversified and will continue to include foreign stocks at a ratio of about 1:2 vs. US stocks in most portfolios. I’m confident the tide will turn eventually and foreign markets will outperform their US counterparts. We just can’t know when it will happen and so instead of trying to pick winners or losers, we believe it makes more sense to invest globally and be confident that population growth + productivity growth + inflation will result in nominal growth on average across all geographies and that in turn will result in long-term growth for a globally diversified portfolio of stocks.

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The PWA (Perpetual Wealth Advisors) Financial Tastings Blog is intended to provide our clients and other interested readers with bite-sized, easily digestible information on personal finance topics. We used to publish a quarterly newsletter with similar information and will be archiving some of those topics here. Instead of continuing with a publication that was akin to a seven-course meal every three months, we have found that the fast-paced, mobile-driven world required smaller amounts of information, communicated more frequently. We've turned to the blogging concept to provide it. Topics will include both original content and links to other articles of interest. They will span key areas of personal finance including planning, goal setting, budgeting, cash flow management, debt management, risk management, employee benefits, tax, investments, retirement planning, and estate planning. We'll try to keep posts brief, simplify where possible, and answer as many questions as we can. Speaking of questions, feel free to send them to blog@perpetualwealthadvisors.com. We'll occasionally open up the mailbag for a Q&A post. Bon appetit!

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